Proactive Investors is reporting live from the Australian Petroleum Production and Exploration Association’s 2012 oil and gas conference in Adelaide, South Australia from 13 May to 16 May.
Australian shale and other unconventional plays have captured the attention of investors in the last year or so in hopes that successes enjoyed by the sector in North American can be transferred here.
Wood Mackenzie told the APPEA 2012 Conference in Adelaide today that while this might by possible, a number of factors needed to line up first.
The resources consulting firm said that explorers still needed to prove that the geology of the various plays in Australian basins would work, while the supply chain needs to come through to support the development.
Local issues such as the remote locations that some of the projects are located, environmental concerns and landowner issues also had to be addressed.
Wood Mackenzie said there was a limited amount of data about Australian unconventional plays due to the lack of drilling compared to North American plays.
There is potentially significant upfront capital expenditure in developing the play before you get to any significant production; potential issues with water when fraccing the wells and when disposing the water afterwards; and dealing with environmental and regulatory approvals.
The more remote locations will also add further to the costs and where there were already significant discovered reserves, the was the question of where the newly developed resources would sit on top of them.
Other factors include the wet season in some areas limiting activity levels and an overall lack of services to undertake drilling and fracture stimulation.
However, Wood Mackenzie noted that like the U.S., liquids could be a game changer by reducing the break even cost and bringing projects into a more competitive range than current projects.
With these challenges, it is little wonder that Total believes that Australian small and mid cap companies may find securing a major partner an attractive option to develop their projects.
A number of larger companies have already committed A$600 million to their farm in work programs over the last 2 years.
Besides bringing the resources – financial or otherwise – to deal with some of the challenges, which include the large areal extents of the unconventional plays, large companies could also offer other benefits to smaller companies.
These include providing credibility with bankers, regulators and stakeholders; project management skills; and possessing a complete range of competencies from exploration to marketing that would prove beneficial in developing a project.
These include skills in dealing with the logistics of large projects and specialists to deal with the unique requirements of unconventional resources.